After Brexit, car prices are tipped to rise

Fall in value of the pound likely to affect car prices, say experts

Nick Gibbs
Aug 9, 2016

Will Brexit make cars prices more expensive?

It looks inevitable. We import the majority of cars sold in the UK from the Eurozone and since Brexit, the value of the pound has fallen 17 percent against the euro compared to its peak in the last 12 months.

That means the bulk of car manufacturers selling in the UK are now making less money from each car sold, especially those that import the most, namely the VW Group, Ford, PSA (the parent company of Peugeot and Citroen) and Vauxhall.

PSA was the first to say it would have to put prices up after the Brexit vote at the end of June, but did not do so immediately. The only maker to raise prices in the days after the vote was is Ford, which has increased those for the S-Max and Galaxy people carriers. However the maker said that wasn’t Brexit-related. “That’ll have been in the planning before Brexit,” a Ford spokesman said.

Makers are holding off raising prices to see whether the situation settles, according to market analyst JATO Dynamics. “There’s not been any massive change as most brands are waiting to see if the exchange rate returns to previous levels,” the company said in a statement.

Makers won’t react hastily because they need to protect used prices, according to one premium-brand dealer who spoke on condition of anonymity. “From a used perspective, how do you value a car when the new price fluctuates so much?” he said. “I’d imagine the [valuation companies] would knock them pretty hard.” Used prices are important because they affect the figures for monthly finance deals, the preferred way of buying for the majority of UK customers.

Buyers may want to take advantage of current deals before the end of September, when makers will announce fresh deals, providing a simple opportunity to increase prices. “Maybe Q4 [the fourth quarter of the year] will paint a different picture,” the dealer said.

Given computer companies such as Lenovo and Cisco have already put up their UK prices post Brexit, it seems likely car companies will do as well.

Should I buy a car before Brexit?

Probably. Although there's always a chance of prices falling, the best that many are hoping for is that prices stay stable.

The big unknown is whether Britain is still going to be able to trade within the European single market. If that's the case, then the situation remains the same. If not then tariffs could be imposed on cars crossing the border. Currently, cars imported into the EU from places like Japan are subject to a 10 percent tax, which helps make European-made cars more competitive. The EU could decide to impose a similar tariff on cars made in Britain. The UK would then be likely to respond in kind. This would probably result in higher prices for every imported car.

That said, the UK is currently Europe’s second biggest car market and makers will be very keen to ensure we buy cars at the same volume. That could mean finding ways to keep prices steady.

Will Brexit affect car finance prices?

Currently the leasing industry has seen no major change in lease prices post Brexit, according to industry experts. They report that prices have actually fallen slightly, but that this is a seasonal effect rather than due to Brexit.

Leasing and PCP (private contract purchase) prices are a good ‘canary-down-the-mine’ indicator of manufacturer thinking because they can be changed without altering the list price. Prices are set quarterly and that practice is expected to continue.

Finance deals are good value now because interest rates are low, having just been cut to 0.25%. Rates are likely to stay low as the value of the pound remains weak.

Will insurance prices change after Brexit?

It’s too early to say whether Brexit will affect insurance, according to the Association of the British Insurers (ABI). Currently it’s “business as usual” according to a spokesman there, but there are unknowns, for example whether the cost to drive in EU countries will go up when we are fully divorced from Europe.

One impact might be a reversal of the 2012 EU-led directive that makes it illegal for insurers to charge women less than men for car insurance. That pushed up insurance for women, who insurers generally regarded as a lower risk then men, and reduced it for men. The British government at the time was opposed to the regulation, fearing it would push up all premiums in a “risk-averse” business. However the ABI has said average car insurance premiums have remained broadly similar.

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